Novolipetsk Steel trading update for Q4 2007 and FY 2007

Management comments In 2007, total crude steel production was 9.056 million tonnes. This is nearly in line with the planned production volume despite the temporary underperformance of blast furnace No.6 during Q2/Q3 2007. The decrease in slab output (-3.7%) in 2007 compared to 2006 is primarily attributable to the increase of hot-rolled steel production. The increase in hot-rolled output (+10.7%) and decrease in cold-rolled output (-7.2%) in 2007 was prompted by the higher margins available for hot-rolled steel export sales than for cold-rolled steel export sales. The decrease in cold-rolled steel output also resulted from further processing of cold-rolled steel into higher value-added products (pre-painted steel, dynamo steel, transformer steel).
The commissioning of the third hot dip galvanizing line resulted in a 10.7% increase of HDG steel production in 2007 compared to 2006. The increase in dynamo steel output (+9.8%) in 2007 compared to 2006 is attributable to growing number of orders for this product. The minor decrease of grain-oriented (transformer) steel output on a y-o-y basis was caused by further development of the electrical steel product portfolio. The substantial growth of grain-oriented steel production in Q4 2007 compared to the previous quarter is attributable to modernization of electrical steel mills in Q3 2007 focused on improving product quality.
In 2007, DanSteel A/S increased the production of hot-rolled thick plates on a y-o-y basis by switching to a four-shift work schedule. The growth of hot-rolled thick plate production in Q4 2007 compared to the previous quarter resulted from the annual maintenance schedule during July – August 2007. The optimization of the technological process focused on reducing metal loss resulted in grain-oriented steel production growth at VIZ-Stal (+4.9%) in 2007 compared to 2006. As for the mining segment, Stoilensky GOK demonstrated an increase in production of iron ore concentrate in 2007 due to the commissioning of the first stage of the fourth section of the beneficiating plant in 2006. The growth of sinter ore production is attributable to favorable mining and geological conditions of the deposit. The increase of coke production (+28.1%) on a y-o-y basis results from putting into operation a new coke battery at the end of 2006 and growing demand in core markets. The seasonal year end demand weakness has resulted in price decreases for certain flat steel products supplied by NLMK. However, the seasonal factor did not significantly impact on overall price level for NLMK’s products. Moreover, prices for certain products including pig iron, slabs and electrical steel surged due to growing demand on the domestic and global market and further US dollar weakening. The DanSteel and VIZ-Stal product prices demonstrated growth during the reporting period. Despite the fact that prices for Stoilensky GOK products were fixed during Q3-Q4 2007, the lowering USD/RUR exchange rate resulted in growing average prices for iron ore concentrate and sinter ore at Stoilensky GOK in Q4 2007 compared to previous quarter. The supply shortage on the coking coal market resulted in growing coking coal concentrate prices and, as a consequence, Altai-koks coke prices.